Insuring Against Extreme Heat Navigating Risks in a Warming World 2025

Innovative insurance products and partnerships 3 Parametric insurance has emerged as one of the most promising mechanisms for enhancing climate resilience in recent years. Also known as event- based or index-based insurance, this product provides payouts when specific trigger conditions are met. The use of predefined triggers and measurable indexes offers greater transparency, speeds up the claims process, reduces administrative and frictional costs, and strengthens resilience for vulnerable communities.39 Parametric insurance is linked to the loss-causing event rather than the actual loss sustained from the natural disaster, meaning it can increase the scope of coverage and protect against the losses that traditional insurance cannot (or will not underwrite).40 Parametric insurance products use weather data readily available to the public, such as rainfall, wind speed or temperature, which reduces the information asymmetry between policyholders and insurers when a climate disaster strikes. As climate risks become increasingly frequent, intense and long-lasting, parametric products can play a crucial in mitigating both direct and indirect losses. Parametric tools have been used across a host of climate risks, such as coral reef repair and protection during hurricanes, reforestation after wildfires and mitigating the impacts of crop loss during a sustained drought. This can help mitigate  economic losses associated with business disruptions across agriculture, infrastructure and other highly exposed sectors. Parametric insurance has gained traction amid difficult underwriting conditions and protection gaps – as these products evolve, they are broadening the scope of coverage to events such as extreme heat. In 2023, The Atlantic Council Climate Resilience Centre, the Self Employed Womens Association (SEWA) and Blue Marble developed the Extreme Heat Protection Initiative, an integrated approach that combines risk transfer, risk reduction and financial inclusion.3.1 Parametric insuranceThe insurance industry is driving innovative products and partnerships to address the impact of extreme heat and related climate perils. Addressing the impacts of extreme heat and related climate perils will require a multistakeholder approach, in which the insurance industry must play a central role. Insurance is the most tangible form of climate adaptation that individuals and communities can access. The insurance industry’s response to extreme heat involves using past products and partnerships that have been successful in addressing other climate perils – especially flood insurance. However, the unique challenges posed by extreme heat require the insurance industry to take on a reimagined role as risk advisers, data consultants, influencers and de-riskers of investment while also helping to develop resilience strategies that engage policy-makers, regulators, business leaders and other key stakeholders at local, national and global levels. While the industry can do more to address the climate crisis, industry leaders are already advancing innovative products and partnerships to address extreme heat. 13 Insuring Against Extreme Heat: Navigating Risks in a Warming World